American Vanguard Corporation Q1 2023 Earnings Call
Mhm.
Hum.
[music].
Welcome to the American Vanguard Corporation first quarter 2023 finance results I will now turn the call over to Bill cruisers director of Investor Relations you may begin.
Thank you Misty and welcome everyone to American Vanguard's first quarter 2023 earnings review.
Speakers today will be Mr. Eric linked to mute, the chairman and CEO of American Vanguard.
Mr. David Johnson, the Companys Chief Financial Officer.
Mr. Scot Hendricks senior Vice President in charge of the U S and Canadian crop sales and our application technology initiatives, Mr. Jim Thompson director portfolio strategy and business development. The one who is guiding our green solutions initiative.
Mmm 69, we've got that 800 employees.
We're fully integrated.
Company with your basic R&D as well in our business model is largely been to acquire branded products from the majors, we have to finish.
Initiatives on top of that there will be talking about in a moment.
You will have read from our earnings release, and we have highlighted on that on the slide five.
R Q1 sales of Aztec impact were lower than expected due to a supply chain delays in China in the case of Aztec.
And a glut of large volume herbicides, specifically glyphosate include Phosphonate U S market in the case of impact however.
However, with unusually low channel inventory of our domestic crop products, we expect strong sales for the balance of the year in fact, even with the Q1 performance, while well below our original forecast.
R 2023 full year outlook will improve upon our 22 year with.
The ranges of revenue, 5% to 7%.
Adjusted EBITDA up 14% to 18% of net income of 17% to 25%.
So, let's start with Q1 and move forward to the full year and beyond.
There are two main reasons for our queue. One shortfall Aztec are leading insecticide and impact are leading herbicide and in both cases the drivers were unique.
Let's begin with Aztec.
There are several raw materials needed to make Aztec, but our issues where with too.
Let me walk you through slide six.
First as as an intermediate called <unk> that has been historically made by a European supplier last year or supplier advised us that they would not be able to produce again until 2024.
Accordingly, we successfully.
Capital source in China.
Which successfully commenced production last year.
Gabbro is used to make another key intermediate required for Aztec production called sodium HP.
Historically, we relied upon a domestics producer of sodium HP. However in June of 22 that supplier informed us that they could not produce until the end of the 22 years.
Since this would not be in time to meet our queue for Aztec demand, we engaged our new Chinese to outgrow told her to convert that <unk> that they produce and Disodium HP initial.
Initial production was to begin in October of 22, but due to a series of issues people equipment shutdowns and COVID-19 their production did not commence until the last week of December 2002.
Steady production, however, did not really begin until the middle of February of 2003, and daily output levels did not optimized until April .
Adding to the issue or domestic producer of sodium HP was unable to produce until March of 23.
As a result, we were able to produce only one third of the Aztec demand in time for the 23 season.
We attempted to substitute or other corn solo insecticides, but had limited success.
That said with a physician both suppliers for full production and plenty of lead time in advance of 2024 seasons.
For additional color on Aztec with respect to Q1 and market conditions for the coming year I turned to Scott Hendrix Scott.
Scott Thank.
Thank you.
On slide setting you will see that our 2023 demand forecasts for Aztec was approximately 7 million pounds.
As we assessed and prepare for the 2023 Aztec supply challenge. It was critical that we understood our supply position at distribution and retail.
Our analysis of grower point of sale data and distributor reported inventory, we calculated that we had over $2 eight may impounded Aztec and customer inventories. We used this data to develop extensive supply planning by customer.
The 228 million pounds, we sold to insure historical Aztec users as much as possible.
Also we were able to secure additional force TNG dad equated to approximately 430000 pounds of Aztec.
Therefore through a combination of channel inventory and season production and product substitution, we were able to provide 554 million pounds of Aztec $4 six have an equivalent for the 2023 growing seasons.
This was a very fluid and dynamic scenario as we had daily and weekly supply updates that a commercial team overlaid with geographic market dynamics to confirm proper product placement in the market.
As we have continued to monitor the season, we calculate the channel inventory has declined to less than 5% of the annual demand as compared to our historical inventory levels have approximately 30% as a result, we anticipate strong demand for our customers in Q4 of 2023 in preparation for the 24 growing season.
Thank you Scott to cap off the subject and is worth noting the effect that Aztec sales have had on our overall profitability.
As you can see from slide eight we estimate that missing Aztec sales of about $30 million in revenue is roughly equivalent to reducing earnings per share by 38 cents.
That was largely have been recognized over both Q4 and Q1 in the first quarter alone has caused a drop in EPS of about 20 cents a share.
Now Scott, Let's circle back to you for a better understanding of impact.
As Eric pointed out and as you will see on slide nine and market dynamics for the 2023 season are much different in 2022 is.
It is important that we understand our customers buying behavior working capital over the last several years has not been a challenge at the cost of money was inexpensive and channel inventory had been running historically low as the supply chain had been under stress.
According to early estimates the U S crop protection market surpass $15 billion in 2022, which is $3 billion more than 2021.
Eric previously mentioned increase supply of glyphosate <unk> in 2022.
Channel ended of 2022 season with higher inventories across all crop protection segments. If you combine increased ending inventories with increased prices and higher interest rates customers had significant capital outlay and inventory entering the 2023 here. Furthermore, those laws.
<unk> volume molecules, along with a range of fertility products began devalue enhanced supply increase in demand decreased by all channel levels.
<unk> and retail customers are now focused on reducing inventories Anne driving cash flow, which is influenced our impact sales in Q1 of 23.
Turning to slide 10.
Our lead impact brand drove are upside in 2022, and he used primarily in mid to late season applications by itself or combined with non selective herbicides that are in trade enabled can manage difficult to control weeds, we anticipate retail O'brien and this will continue to exhibit best practices for <unk>.
<unk> resistance, but they will have a focus on exhausting existing inventories as dictated by their current financial needs <unk>.
Impact inventories are normal and this puts us in a positive position for the 23 season and full year performance. We anticipate this is a short term performance challenge with our lead impact brand and will not continue as customers work through their surplus inventories of non selective herbicides.
Lastly, I want to highlight are continued formulation innovation with our impact randomly. We now have four brands that have expanded our historical used pattern and corn and across strategic customer basis.
Furthermore, our innovation pipeline continues to grow and rice and soybeans.
In fact, we launched our latest herbicide solution rent day that contains are pro least technology. The power police Optimises, we control and stability and to date, we are almost sold out of that brand.
Thank you Scott.
As you can see from the slide 11.
During the first quarter of 23 impact sales were about 10 million less than those in Q1 of 22. The shortfall alone would have counted for another 12 cents and earnings per share those.
Those taken together the Q1 EPS effect on Aztec plus impact was 32 cents a share in short had we not had these two unprecedented conditions or quarterly EPS would've been 39 cents per share not the seven.
Reported.
At this point, let me ask David to make a few comments and then I will return.
To give an update on our growth initiatives and a further talk about the balance of the year David.
Thank you Eric with regard to our public filing we plan to file a Form 10-Q late.
Later today.
On Slide 13, you will note the first quarter of 2023 has seen a challenging operation operating performance for the company with overall revenues down about $25 million or 17% as compared to the same period of 2022 for the reasons that Eric is already.
Outlined.
The main sales drive us for our business performed in a more usual manner with quarter over quarter increases of 4% and a non-profit business and 2% for the international business.
Moving to slide 14, as we indicated at the time of the last call. This is the first quarter there'll be a presenting our results in a manner that we think more closely parallels our market peers we.
We have moved on outbound frighten logistics costs, which is substantially variable and tracked closely with sales performance to cost of sales rather than operating expenses.
This change results in an equal reduction of both gross margin percentage and operating expenses as a percentage of net sales. It has no impact on operating income or net income.
For the first quarter of 2023 under a new accounting approach to frighten logistics on slide 15, you see that our gross margin percentage ended at 31% of net sales as compared to 34% in 2022.
The low overall gross margin performance is driven by the reduction reduce sales of U S. Trump products, which is some of our best gross margin performance and by reduced factory overhead recovery, driven primarily by our inability to manufacture appetite and the volumes we planned as a result of materials shortages.
As Eric detailed in his opening remarks missing sales of these U S truck products had a direct and significant impact on our gross margin performance.
Further to my remarks regarding the new presentation of a statement of operations on Slide 16, you can see on our operating expenses are presented here without costs associated with outbound logistics typically those costs amount to about 7% to 8% of sales.
For the three months ended March 31st 2023 operating expenses reduced by 4% from the same period of 2022.
This was driven by lower administrative costs associated with short term incentive compensation as a result of the low financial performance on the benefits of some positive exchange rate movements across our global business.
As something of an offset the board agreed to pay cruiser capitals proxy contests fees resolving all outstanding Memphis.
In summary on slide 17 on that sales declined by 17% and gross profit ended at 31% versus 34% in the prior year operating expenses were reduced thoughtful person, mainly driven by low accruals for short term incentive compensation.
A cash management performance was good and we ended with that with about the same level as this time last year, and notwithstanding spending $27.3 million to repurchase approximately 1.4 million shares of the company stock during the last 12 months.
Interest expenses up significantly driven primarily by interest rates with average 6.8% during the quarter as compared to 1.9% for the same period of the prior year or more than three and a half fold increase.
We continue to follow a disciplined approach to planning it all factory activity, including balance balancing overhead recovery with demand forecasting inventory level on.
On the graph on slide 18, you can see that at the end of the first quarter of 2023, our inventory increased to 219 million is.
As compared to $168 million at the same point in 2022.
This increase was driven by a few factors, including increased inventories of raw materials necessary to manufacture aspect.
Comparatively higher inventories of impact and generally across our business and expectation that we're looking at.
Strong sales growth in the second half of 2023 and based on that forecast, we need to have higher inventories to meet related customer demand.
The <unk> the graph on slide 19 shows that that ended at $97 million at the end of the first quarter of 2023 as compared to $98 million. The same point in 2022.
Essentially that remained flat. Despite the fact that we have spent 27.3 million repurchasing the company's stuck over the last 12 months.
Moving to slide 20 during the first quarter of 2023, we have made some additional share repurchases and those are the shirt shares outstanding and produce slightly the share price remained relatively flat during the period that increased which is normal for the start of the company's annual cycle and cash remained.
About flap of December .
Enterprise value increased by 76% during the period finally leverage remains low but increase from seven two times bank adjusted EBITDA at December 31st 2022 to 1.63 times at March 31st 2023, reflecting the company's annual cycle.
With that I will hand back to Eric.
Thank you David.
Heard Scott's color on the major elements of our core business. Let me turn next to two other important business drivers some past and Green solutions. This review will give US a foundation for a full year 23, and 25% performance targets for an update on some town some fast I turned back to Scott.
Thanks, Eric our focus for 2023 has and is to continue to innovate within our same path technology platform by introducing several hardware and software upgrades to deliver the targeted Sim past experience.
We launched our phase III impasse technology, which includes units that will be equipped with liquid sensors. This technology will enable the growers monitor and measure how much liquid material.
Is proscriptive Lee applied by the equipment.
Further we have enhanced our tracing capability by installing a dedicated modem that communicates all sin past data points to our ultimate platform take.
Taken together these advancements will enable users to measure record and verify what they are applying where and when.
Whether it's granule or liquid.
We have sold 15 use impasse systems domestically.
We are.
We're estimating that this will treat approximately 100000 acres based on the prescriptions that have been defined.
Our domestic total <unk> revenue outlook is unchanged at $12 million to date.
Slide 22 identify as the key financial drivers for sent as commercialization.
Are treated acre growth with our <unk> solar technology has grown almost three eggs since 2021, while average revenue per use grew 56%.
We now have 161 cent pass technology systems being used domestically to treat approximately 302000 acres in.
To that end, we are currently adding a dedicated sales and marketing team to identify the biggest players in precision egg to forge alliances with those companies and to call upon distribution retailing growers to embrace this technology.
At the same time, we are meeting with regulatory authorities keep them apprised of the capabilities of this technology that we believe answers usda's call for digital agriculture.
After having spent about $27 million over the past five years developing this technology, we are now focusing on attaining broader market as well.
In fact, we plan to sell 15 to 20 units in Brazil, which is the largest act producer in the world.
With that I turn it back to you here.
[laughter].
Thank you, Scott and I'd say that 15% of 20th systems is.
For the September 23, Susan So it's still the confidence.
Next let's turn to our Green solutions to cover that business will have driven Thompson.
Jim.
Thank you Eric as we move to slide twenty-three.
We wanted to highlight the key financial performance indicators and commercial achievements for Q1 of 2023.
Terms of our financial performance for Q1, regenerated Green solutions revenues of $13.7 million.
Which was an increase of 39% as compared to Q1.
2022, and in line with our growth growth estimates of 40%.
With a strong start to the year, we can reaffirm our green solutions guidance of $70 million for fiscal year 2023, with Q2, and Q3 generally being the highest selling quarters for biologicals throughout the year.
The performance in Q1 was led by strong organic growth by our Latin American team.
Strong sales of our Bayshore product in the U S market.
On the commercial front, we successfully launched or by awake brands for corn, and soybean and the U S seed lubricate market.
We view this market as an incremental value add platform for Ambac and it's channel partners.
And we will expand the byway product line into new crops in the future.
Our <unk> team also executed a new supply agreement with new leaves and Biotics in the first quarter, where both parties will collaborate to launch new products.
And Amex nonprofit segment.
This further strengthens the relationship between new leaf and <unk> in the United States.
Our <unk> team also recognized for sales of the American Biosystems products in the first quarter.
Which stem from the acquisition made at the end of 2022.
We continue to grow our dreams solutions segment, and our international markets.
We received regulatory approval for the greenhouse products via our Latin American team in Costa Rica.
Which opens the door for increased sales of our proprietary family of products acquired from a greenhouse in 2020.
Lastly, the business development and M&A landscape continues at a feverish pace. The recent changes in capital markets have caused more companies to seek partnerships with larger companies access.
Accelerated financing events.
Or potential M&A transactions, all of which increase the potential for incremental growth and the green solutions business.
<unk> is working diligently to evaluate all new growth opportunities with an intense focus on bolstering our green solutions portfolio.
On slide 24, we wanted to tell a little bit more about our biowaste market opportunity.
File wake launched in Q1, and we view the market opportunity is very large in excess of 150 million treatable acres for corn and soybean in the us alone.
We showed strong sales in Q1 and a good pace of sales in queue to.
We're happy with the progress on line given the accelerated launch window and the fact that <unk> is our first product in the seat lubricant space.
Developed a buyer awake product pipeline that focuses on crop expansion in to peanuts, cotton wheat and other broadacre crops.
While also expanding the product line to include additional biological products.
Such as by our besides violence exercise and micronutrient.
Firework is showing yield increases of $4 four bushels per acre for soybeans and $5 three bushels per acre on corn, providing a very attractive return on investment for our growers.
As we move to slide 25, we wanted to show a short video clip that demonstrates the ease of use of the bioware products for our farmers, we felt that we'd be very valuable for you to see our new product system at work.
The video will follow shortly.
Mmm.
Okay.
[noise].
[noise], Hey, guys I'm Hunter Pruitt I'm here was rebar from Ambac robots treat our foreign T mobile away with something we got into this you've been doing a great job for us.
We like to just lay out of the box.
Sprinkle them evenly across the soft.
Worry about that because it's soybean base, so as not par slice of this house that are made out of asbestos.
We just Franklin over.
Real good small see Mrs <unk>.
67 44.
Great coverage, where rhoda dorsey leg into the sender.
Great job for Us I appreciate job.
[noise].
And lastly.
Slide 26 shows the continued strong guidance that we are targeting in our green solutions business.
The bulk of the growth in 2023 will come from the organic growth of our existing portfolio as we continued to integrate and market key products from our acquisitions.
In addition, we are adding new products, such as by awake and the American bio products.
<unk> International business continues to be a strong driver for growth and all of our geographic areas in 2023.
In 2024, 2025, we expect to generate incremental revenue by new partnerships geographic market expansion and M&A and M&A transactions.
Thank you Jim at this point, we can turn.
Two R 2025 performance targets as you can see on slide 27, with a revised Q1 performance are upward trajectory has been moderated in the middle of the graph.
However, the upward curve, otherwise otherwise unchanged for the years 2425 and.
In other words, we remain on track to meet our mid term targets.
Our final important topics as the full year 2023 outlook.
Even after factoring in lower than expected Q1, as you can see from slide 27, we are still expecting that are 23 performance will exceed that of 22 and are targeting targeting the following net.
Net sales between 640 $652 million, which would be 5% to 7% above twenty-two gross profit margins in that 33% to 35 range, which is similar to twenty-two operating expenses as a percentage of sale 25 to 27, which is in line was last year.
Adjusted EBITDA between 84, and $86 million representative improvement of 14% to 18%.
Net income of between 32, and $34 million, which would be 17% to 25% improvement over 22.
In closing following a first quarter setbacks as soon as strong performance for the balance of 23 given.
Given the conditions of our core business the trend line for Green solutions portfolio and are focused approach on dining further adoption of some past we are positioned to drive growth and profitability in both the short and mid term.
With that I'll turn it over to the operator to take any questions you may have misty.
If you would like to ask a question. Please check <unk> and it looks like we have a question some checks catch capital Karen.
Yeah, Hi, I have a couple of questions.
On the.
Let's focus on maybe on.
Let's see.
Check the soil insecticides.
I'm just curious if so the 20 cents in the quarter was that fully attributable to two revenue that you think you would've had orders for and delivered.
They are also.
Impact from not having the inputs and therefore getting adverse factory absorption variances and therefore affecting gross argued for the rest of the business or is that <unk>.
Yeah, just wondering since exclusively attributable to the mill selves.
About 20 cents as to the sales third factor performance then we're running the factory.
33% of.
Cassidy during the first quarter.
And practices actually over the quarter, probably even less less than that but.
But once we're once we're beginning manufacturing we can't we can't shut down.
Do something else because we've got a three week.
Turnaround so basically had a plant that was running well below capacity.
That's the particular.
At at Axis, we have other other units there, but that's our main unit.
Okay, and then you just start I understand that.
Basically you you were not able to deliver it to the channel, but as of the end of the quarter.
Corn plans were only 2%.
And of April just 26 per cent, maybe yesterday from the USDA, it's up to have the acreage, but it's so the question is.
Are you <unk> were you able to recoup any of this lost sales in the first quarter in the second quarter as plant corn find things are progressing.
Yeah, We did we did sell more in the in the second quarter than we did in the first quarter.
And.
But I think I think Scott we probably.
We're done about April .
Somewhere between April 15th April 20th we did continue to produce and we do have we do have additional tech and we've got some foreign relation, but basically the channel.
Really kind of shut down on us and that by the end.
The end of the third week maybe of of of April .
Yeah, we confirm that Eric there is an optimum planting window for most of the producers and as we were getting close to middle to the end of April understanding there is time logistics to get product to the market.
Customers at that point made a decision that it was going to be too late for the market.
Gotcha and then on the.
Sorry on the impact.
This is not sort of.
Close to merging broad spectrum herbicide, but more one that one that compliments some of those workhorse herbicides like you you know obviously.
Glad to say goodbye, but so I don't it's a little counterintuitive that just the surplus availability of those that I get that there's a downward pricing.
You know pressure on those on those molecules given the normalization of the supply chain, but the extent that those are you know more available and to the extent that your product was the compliment those especially in areas where resistance was an issue I would've thought you know that's the man.
When would be okay for those so it can be just reconcile that that different.
I'll take the first one is up but <unk>.
Bob but.
So.
What we.
What we saw on Scott alluded to.
Does that.
Both.
[laughter] distributors and dealers.
Sitting on.
On a good.
Good quantities of both glyphosate and <unk> carried over.
And each of them they charge their units for for cash management, and so from a buying standpoint.
Totally unlike what we saw on the <unk>.
2002 season, where people were just by and everything that could get their hands on it.
At this point.
Okay, we're gonna move through.
Our inventory some of which is upside down in terms of cost versus where the market is and then will and then once we've accomplished that then we will look to to later so.
So Scott maybe any color you might want to add on that.
Yes, Eric I tried to build upon it.
22 performance was outstanding we were able to position impact and substitute for a lot of the large non selective molecules that were trained enabled glyphosate and glue parts and apian primarily to level.
Most of the supply that we've referenced in our commentary came in the second half mental to the second half of last year, which was too late for the season. So a lot of the upside that we took advantage of 22 by increase in rates as the market at prepare or was preparing for 2023, we still the best.
Practices from a week resistance management is going to take place impact is very complimentary to both of those molecules.
We just want to have the same opportunity because of the surplus that that's in the market today are both lie to save <unk> that we had in 2002.
But as a brand to we've got the three other.
Combination products that received brand you're building. An addition to our overall herbicide portfolio with what we've got now in soybeans and Randy So we were.
Really herbicides with a weak spot for us back 30.
Three or four years ago other than impact and since then we've built up a nice portfolio. So.
Well, let me just last one on that subject than I can jump back in the in the queue, but just so given this normalization of the sort of these major herbicides.
Roundup in particular is.
So pricing is way down for those practices that.
Sent that there is you know.
Yeah, no upward pressure on pricing.
The supply chain was challenged and that provided an umbrella for other suppliers of perverts out to lift their prices with the normalization is that creating pressure on your.
Sales of of impact or your pricing for for impact or other herbicides.
Okay. Go ahead, yeah really good really good question, what I'd share with you the complimentary nature of impact.
And really the proprietary nature of what it delivers to help control some of the most difficult weeds in the marketplace. Today, So thats Palmer Mras Waterhouse ragweed those molecules are either resistance, meaning like <unk> are resistant or the performance is very low.
So we impact.
Is complementary and helping manage.
To control those difficult weeds, so the value proposition is completely different.
Then while I have to say there was a classmate and so we feel good about our current pricing decision, despite what's happening with pricing dynamics on the other molecules.
Thank you.
Alright next question is going to come from Jerry speaking, it's not capital J line or something.
Good afternoon, and thanks for taking my questions.
So I wanted to start with Aztec right and.
And actually take a step back this sounds like with aspect. It was a long lead time sort of supply chain issue.
It had started a ton of the last year.
<unk> through December into this year.
And they're really they're just the question is does.
Does this change how you view your supply chain or how you can manage it or or.
Or track is so we.
We don't necessarily have issues like this in the future.
Yeah. So then when Covid head we shifted.
Dramatically our focus on supply chain and we looked at those areas, where we were sole source.
We had a huge challenge in phosphorous, when when Pakistan shutdown people cleric Portsmouth sure China was no longer going to export phosphorus.
Now put put a.
Monumental strain on us, but we were able to steer our way through that and really mountainous sales and in your material way.
This one.
Did it kind of hit us we we.
<unk> when we got hit with that we said okay.
We're set somebody up to manufacturer they did a good job but manufacturing.
But we did have just one source of of our sodium H P and it was domestic.
They had issues and we're.
Push back what we thought was going to be June 22 campaign.
And.
Went to is it started moving towards September .
Aged are Chinese supplier to outgrow to convert the pro into the Soviet image P and with that.
Refilled also that our domestic supplier was gonna come come on stream. So.
Even though we knew we were going to be at some point, we figured we'd have some challenges, making all the demand we needed for the fourth quarter. We we're pretty sure we would have product available.
Through first quarter to meet meet the demand, which was again 7 million pounds very very strong.
As we kind of.
Got through it they had startup problems at at the Chinese producer and manufacturing this new new product that they've never made before and it just got coupled with with with China with the Covid shutdowns they had.
New years.
A park shut down for the whole industrial Park, there were a whole series of things that just kind of kept going forward and they initially.
They're expected to be able to produce around 3500 kilos of day, but for quite a while it was down to the thousand kilos per day. We were are freezing every three days everything that we could get our U S producer, who is going to be fourth in December .
Pushed into into March and so each week, we just kept seeing is getting tougher and tougher.
So.
That being said we did we did.
Construct with the two manufacturers to make sure we have plenty of material going into fourth quarter. When we'll do our next campaign with with Aztec.
Overall I would say.
We have.
Before as in previous flu as we got the latter part of of 21 going into twenty-two we've talked about positioning.
Positioning in advance of needs to make sure that we didn't get screwed. So if you look at our inventory.
It's gone up.
Considerably over where it was first quarter last year, a number of those things are are raw materials.
Two is under the weather it's packaging labels.
Intermediates.
Did we did manufacturer.
All of the campaign for the other half of the Aztec molecule. We made it the access facility, so I guess as far as changing.
I think for the for.
For the foreseeable future until we see something different we will we will be bringing materials in advance to make sure that this doesn't happen again.
Yeah.
And then even taken a step further I mean, not necessarily I mean, maybe you are there any other sort of.
Intermediary products that are sort of sole source that.
R.
That are key ingredients are key intermediate intermediate and ingredients that are larger revenue.
Products right so.
You know outside of Aztec right, maybe you know.
You give up a couple of points of margin.
You know and go out to a couple of different producers or set up a couple of different producers have sort of a review the supply chain to understand what's going on from that perspective.
Yeah, we have and we've gone through so R.
Supply chain as as.
Basically it charted out every every product that we're soul sourced on and the path on and we've been doing that for the last two and a half years the path to dual source and we're pretty well complete on that we have one one there besides that.
That would.
Have a second source that we're able to use for outside the U S. But we're in the process of getting today to improve that source for for U S as well.
We've had.
Or <unk> or beside was was sole source after we lost.
Supplier.
In China, the got shut down, but we have <unk>.
Also backed up with the source out of Malaysia.
So we're pretty well focused on the idea that we would not your sole source on a product again and that being said to your point do we.
If if to keep two suppliers alive, we have a blended costs that is.
Potentially higher than one of one producer.
We're going to do that and so far we've been able to factor those.
Increases into our pricing program so.
Got it that's that's helpful. I appreciate that.
What do you have a sort of projection of maybe or EBITDA sort of free cash flow conversion or what would potential free cash flow be this year and and and to follow up with that that would be any any changes to your investment schedule with.
With.
With a reduced cash flow from this year.
Tentatively from which you want.
And we have [noise].
Given the full cast did range for EBITDA from from a cash flow perspective.
We are a little bit behind.
And the first quarter, but anticipate.
Our annual cyclists too.
Found out working capital in the first three quarters or both of US and then start to come down at the end and I don't see any difference in our profile 2023 at this time, Okay got it alright.
Target.
I don't think there's any change in a strategic strategy with regard to invest.
Investments I mean, we're looking at all sorts of different things all the time and.
Yeah, we're not planning to change that.
Got it.
Perfect. That's it for me I appreciate it.
Our next question is going to come from lane take that we have to get that money.
Your line is open.
Hi, Thanks for taking my question.
Most of my questions have been answered, but just just to expand a little on the.
The Aztec supply issue and when you when you guys got back online with that.
Thought that was pretty well resolved when you guys reported the Q4 in March but then you mentioned the selling season going through late April .
I I know prior you guys mentioned that you were anticipating getting a lot of those myths salesman Q4 into the first half just if you walk through the cadence there just is it just.
Those few weeks. It was just it came on a little too late to be able to make those sales and and then you mentioned some going into the queue to like what percentage of that 20, <unk> myths and Q1 do you think shifted into Q2 and we.
We might see recovered.
So as far as that the shift yeah. We did we did have.
Hi ourselves in Q2 and Q1.
And year over year, I think we were a little roll higher tier two and tier. Two then then Q2 of 22.
But on the on the on the 20th.
If you take I'm talking about what we actually did sell and what and what.
What what.
What the Scots numbers reflected on the 2.3 million pounds out of the $7 million that includes.
Second quarter sales, which were which were about.
One three and I think we had about 1 million into one of Aztec equivalent so.
So that mess of 38.
Was I would say the difference between the two three and the seven $7 million.
So I don't know if that was the second part of the question I'm not sure if I answered it.
Yeah, just because you know that's that's from the Q4 into Q1 like.
Like you said a sales and picked up into Q2, you may have so little more but the selling season.
Sort of ended there can you just quantify how much was there any shift there from what you missed in Q1 into cute too.
Well as I said, we were just we were a little ahead of sales and Q2.
Of 23.
Three versus Q2 of 20.
22, so I would say those are kind of kind of more more natural but the but the bottom line is that of the 7 million pounds, which was a bigger demand and what we had for the 23 season.
Of that of actual sales of Aztec we did about 2.3 million pennants and this is this is equivalent of the 4.67% material at random.
So I.
The 38 cents on reporting is.
The difference between.
7 million pounds, and the 2.23, so there'll be there'll be.
Module will pick up and.
Two.
Of what we Miss but the total total combined.
Leaves us $4 7 million pounds short on Aztec, but as Scott alerted we did pick up additional sales of a substitute product, which was equivalent to another 400000 pounds.
Okay, and then I I know, it's different dynamics with the impact, but just the the myths sales there David the ability to to make those up or is it just that that inventories are looking good going forward and we should just be more normalised demand.
Yeah, I think we'll see more normalised demand, we've had growth and our impact brand family for the last three years.
<unk> 22 was significant for the dynamics that we described earlier we.
We anticipate to continue to grow our portfolio.
The four brands that I referenced in my comments and then we'll continue to innovate in this space. So you see at least one maybe two brands to come in that within our pipeline.
Okay alright, thank you.
And it looks like you may have a follow up question from cats.
Nine or something.
Yeah I had.
Follow up on focused on Green solutions, and maybe just focused on biologics first though when you sort of established a beachhead in that that niche if you will.
Sort of yeah, M&A and there was a time when the rest of the industry at least the big guys were sort.
Going through a wave of consolidation somewhere maybe it's focused on it but now passports today. It's you know it's it's viewed as a.
One of the only Corteva highlight is the probably the single largest growth area within.
Protection.
It seems like the big guys are more focused on this they're they're more development efforts may be moving more resources.
The market.
Obviously, the sustainability character to get some more interesting. So just curious about how you've seen.
This affect your positioning there does it become more competitive or Conversely, given the awareness.
Guys might be bringing to the market place and the commercial person that's beneficial to where you are with your product just wondering how do you see that finding out.
Delivering your you know your growth goes in that in that that Sir.
Chris Bob here.
That question is a good question.
It's a space, which is growing very fast.
Very profitable better margins then the I'd.
I'd say mature crop protection chemical business.
We feel that.
We're up pacing the market today with a 40% growth rate versus.
A growth rate of.
Let's say, 15% and more.
Most of the segments we.
We feel that.
We have established good solid.
Good solid foundation in manufacturing with the two plans we acquired through the greenhouse.
Acquisition.
We have good research capabilities.
<unk> R.
<unk> and also in India.
So we're we're we've got an excellent pipeline.
We've got great market access throughout the.
Market access structure in the Americas, China and India.
And we have dedicated people in selling that I think so from a from a business model whereabout as advanced as anybody in the business and therefore.
As you were shown today that.
<unk> for example is an opportunity for us where companies are coming to us because they see that no. How do you see that structure <unk>.
New leaf, which we also announces another company, which is coming to us with their technology. So we have not only in-house technology, but we're also getting licensing opportunities.
So we're actually we feel we're very well positioned to be competitive in that space and space is only going to grow and we're going to grow with it so.
No. If you have a follow up question to that Chris.
Nah Nah I appreciate that color bobbin, maybe the follow up would also be may be for you cause I know some patches near and Dear to you and.
When when you joined the company. It was something that you were pretty enthusiastic about the progress that were in the opportunity. There. The the question focused on some patches I think it was you that mentioned that you know that the.
The you know the infrastructure and around delivering that was also going to provide the data platform for with which grow where it's good measure and capture their or it's a mess.
<unk> and keep track of I guess, there carbon avoidance, if you will and you know given the momentum behind you know sort of.
Decarbonising our economy. It seems like egg is certainly and and focus in that regard and this was a platform which may enable that so I'm just wondering if if there's if there's still a play person impact in that regard or or this is really just more focused right now on delivering the inputs in a in a more precision plan.
Thing manner.
Well so pass as you say is the perfect delivery mechanism for.
Any by a rational products or nutritional products at plant.
So we're developing that range you've seen the announcements that we partnership partnership we have with.
<unk>.
On the nutritional side, we're delivering those those products.
The partnerships we have with.
Other companies that are coming to us we have actually more opportunities then we can process right now.
The hold up is is really the getting those products registered through the PA, you're going to see a lot more announcements coming in the future, but we also through the greenhouse range I just want to just remind everyone that we.
We bought a four product.
Four products and three of those were for soil health with one of them that we were seeing now that we're getting good results in our trial work for nitrogen fixation.
Which goes right into the the carbon market.
That's that's a tremendous opportunity for us going forward as the soil health market develops.
And I think again.
Again part of the system that we.
Wound up developing because of wanting to be able to trace and measure what goes into the soil with the ultimate system, right, which is which is where we're talking about being a pleasure validate record.
And so that that as we're as we're implementing that through this impasse system that winds up giving the grower the ability to have a third party validation of his practices. So what we're really looking to do is capture as practices as far as the nitrogen reduction let's.
And our biological is that that Bob mentioned as far as that we're going to help with nutrient uptake. So that's that's the platform that will be using that we've talked about before.
Yep I appreciate the color. Thanks.
And to ask a question <unk>.
Okay. It doesn't look like there any more questions I'll turn it back over I tried to make their training coaching the mikes.
Okay, well I appreciate everybody.
The participated on the phone today and listened and obviously.
We were disappointed with the first quarter, but we.
We do see that we will have a strong recovery over the balance of the three quarters.
And ultimately report very positive results for the for the year and more importantly that we continue to be on track with R. R. R.
Next to your goals and targets and also.
We're making good progress on our on all three of our growth platforms. So with that thank you and.
We will have another discussion.
With the shareholders meeting.
June 7th I believe.
Alright, Thank you everybody.
And that's complete your call you may now disconnect.
[noise].